US 10Y Yield Rises Amid Mideast Tensions

The yield on the US 10-year Treasury note fell about 2 basis points to 4.46% on Thursday after a weaker-than-expected jobs report prompted investors to reduce bets on Federal Reserve rate hikes this year. The US economy added just 57K jobs in June, while payroll figures for April and May were revised lower. Meanwhile, the unemployment rate unexpectedly edged down to 4.2%, largely reflecting a decline in the labour force participation rate to 2021-lows. Overall, the report pointed to a softening labour market in June. The probability of a Fed rate hike in September currently stands at nearly 50%, down from around 64% a day earlier. In addition, Fed Chair Kevin Warsh said at the ECB Forum this week that inflation expectations had eased over the past month, suggesting there was no urgency to raise interest rates. However, he reiterated the central bank's commitment to restoring price stability. The US bond market will be closed on Friday for the Independence Day holiday.

The yield on the 10-year US Treasury note held around 4.48% on Thursday, maintaining its recent gains as investors cautiously awaited the June jobs report for fresh insights into labor market conditions and greater clarity on the Federal Reserve’s policy outlook. Data released on Wednesday showed private-sector hiring in the US slowed more than expected last month, while the ISM PMI indicated wholesale energy prices had returned to levels seen before the Middle East conflict. Fed Chair Kevin Warsh also said inflation expectations had eased over the past month, signaling there was no urgency to raise interest rates. However, he reiterated the central bank’s commitment to restoring price stability. Markets continue to price in more than a 60% chance of a Fed rate hike in September. Meanwhile, rising oil shipments through the Strait of Hormuz and signs of progress in indirect US-Iran talks pushed oil prices lower and eased inflation concerns.

The yield on the 10-year US Treasury note eased to 4.47% after testing 4.5% earlier in the session after Fed Chairman Warsh said inflation risks in the US were softening. This was aligned with the softer price data from the ISM PMI, as wholesale energy prices returned to levels comparable from before the war in the Middle East. Still, yields held 10bps above the seven-week low from Monday. The ADP Report showed 98,000 private-sector jobs were added to the economy, adding leeway for the Fed to tighten monetary policy to combat high inflation. Although oil prices retreated, refined fuel costs remained sharply higher and backed expectations of a Fed hike this year. Rate traders still showed a loose consensus of one hike by December, but a portion of the market has priced multiple hikes. In the meantime, Warsh reiterated his view that the Fed's balance sheet is too high and hampers the transmission of monetary policy through rate-setting, potentially preluding selling of notes and bonds.